Emerging Managers Better Performers during Downturn

Small, entrepreneurial investment management firms maintained a
performance advantage over larger, established firms through last
year’s market downturn, according to updated research on emerging
investment managers by Northern Trust.

The research update found that firms with less than $2.6 billion in assets under management (AUM), the threshold AUM level equating to 1% market share, delivered stronger performance with less volatility in the five-year period ending December 31, 2008, according to a press release.

The median small-sized manager outperformed the median large firm by 0.41% annually, for cumulative savings of more than $4 million on a typical $200 million institutional allocation over the five years studied. The advantage was similar at the top and bottom quartile marks and across value, growth, and core investment styles, Northern Trust said.

Small firms delivered these results while taking less risk, as measured by standard deviation. On an equally weighted composite basis, small firms lost -0.74% annually versus -1.23% for large firms, with an annualized standard deviation of 13.9% (matching the S&P 500), compared to 14.7% for the largest firms.

During the five years included in the study, small firms in aggregate outperformed the Standard & Poor’s 500 Index six times out of eight in down market quarters. They outperformed the index by an average of 0.51% per down-market period, the best of any of the groups studied.

Northern Trust studied five-year performance data for 476 active core U.S. equity products managed by 282 firms, both emerging and established, with a total AUM of $11.7 trillion.